McDonald’s [MCD69.91-1.42(-1.99%) ] shares are poised to break out to an all-time high next week as its earnings report shows the world’s largest restaurant company is bucking an economic slowdown in Europe and the U.S. with menu innovations, interior renovations and consumers’ hunger for savings.
69.89 -1.44 (-2.02%%) NYSE
The stock touched an all-time high Thursday before retreating, its fourth failure in three months to stay above the $70 level. If analysts and investors are correct, its report next Friday should do the trick.
“We are encouraged that Europe continues to produce strong results despite the recent financial crisis,” wrote Baird analyst David Tarantino in a report to clients at the end of June. “While the company did not provide a specific update, management’s upbeat tone seemed to suggest that sales have not slowed meaningfully from the strong results seen in May.” Tarantino rates the shares ‘outperform’.
DOW JONES INDU AVER…
10096.16 -263.15 (-2.54%%) INDEX
McDonald’s rose this week as the Dow Jones Industrial Average[.DJIA10101.98-257.33(-2.48%) ] was dragged down by disappointing results from Bank of America[BAC14.015-1.375(-8.93%) ] . The stock has outperformed the Dow over the last 12 months, five years and decade as the company consistently navigates its way through strong and weak global economies.
The restaurant chain “is uniquely positioned to leverage its pipeline and marketing scale through a recovery,” wrote Credit Suisse’s Keith Siegner, in a note at the start of June. “At the same time, its unparalleled value mind-share hedges the risk of a hiccup in recovery momentum.”
Its latest new product innovation, following such successes as the ‘McGriddle’, ‘Snack Wraps’ and premium coffee, is the smoothie. McDonald’s began selling the cold, fruity drinks this week. Demand has been so great that it had to suspend a free sampling event for next week.
“Smoothies are the most recent anticipated catalyst and European fears were misplaced,” said Pete Najarian, co-founder of OptionsMonster.com and TradeMonster.com. The shares offer “great value, great growth and a dividend yield when talk of returns is so pressing.”
The 2-year Treasury yield[US2YT=XX0.5886-0.0204(-3.35%) ] hit a record low this week as investors continued to flood into the safety of government bonds on fears the global economy is facing another slowdown. Worries about a weak domestic economy have seemed to trump concerns about Europe.
In the first quarter, U.S. sales were the weak link, growing just 1.5 percent. European sales jumped 5.2 percent. The stock sports a dividend yield of 3.1 percent and a below-industry-average price-earnings ratio of 16.5
Besides Smoothies and earnings anticipation, a reason for the most recent run in the stock could be the falling dollar [DXC182.705-0.038(-0.05%) ] , which makes
McDonald’s products more affordable overseas, where it gets the majority of its sales. If the Euro was to go back into a tailspin in the second half of the year, that could once again deny McDonald’s of that $70 perch.
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John Melloy is the Executive Producer of Fast Money. Before joining CNBC, he was an editor for Bloomberg News, overseeing the U.S. Stock Market coverage team
The fact that the smoothie went up a whole 15 cents is ludicrous. I was thinking that my smoothie habit of at least 3 a week was probably more than what I should be spending, and now I know that I will be boycotting them – no matter how much I like them – I think a nickel would have been acceptable…maybe. A worker sacomment_ID (when I asked if they went up recently “I guess they were doing so good with them that they deccomment_IDed to raise the price on them”. McDonald’s I feel gets you with the enticement of the “$” menu, and then gets the rest of their millions by jacking up the cost of one item so significantly. Their mistake…and I hope everyone feels the same as I do, that they are too expensive now to consume – so that they will get sensible and put the price back where it should be.